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Capital Issues Stay Amidst The Govt’s Bad Loan Steps

Moody’s on Tuesday, 9th May 2017 said that the government-measures to empower the Reserve Bank of India to help banks to deal with non-performing assets (NPAs) are credit positive. However, the global credit rating agency said that the NPA measures may not solve the key structural issues and it will be a relatively long drawn process.

It said, “Government provided RBI with greater powers to intervene in the resolution of non-performing loans and these measures improve the efficacy of resolution mechanisms and are credit positive.”

The Narendra Modi government last week notified the Banking Regulation (Amendment) Ordinance, 2017 after President Pranab Mukherjee’s assent. On Friday, the Centre authorised the Reserve Bank of India (RBI) to direct banking companies to resolve specific cases of bad loans by initiating resolution process under the new insolvency law, where required.

The amendments through the ordinance inserted two new Capital Issues Stay Amidst The Govt’s Bad Loan Stepsections to the Banking Regulation Act to add to the sweeping powers already available to the central bank to direct banks under the Section 35 A of the extant Act and obviate any question on the authority of the RBI while it gives directions to banks, as it deems fit, to deal with massive stressed assets. The central bank can now give directions on even specific cases of default, a practice it had generally avoided earlier.

The bad loans figure in public sector banks (PSBs) have increased sharply in comparison to private sector banks. The bad loan of public sector banks rose by over Rs 1 lakh crore during the April-December period of 2016-17. The gross NPAs of PSU banks in the first nine months of the current fiscal increased to Rs 6.06 lakh crore by December 31, 2016, from Rs 5.02 lakh crore during 2015-16. For private sector banks, gross NPAs rose to Rs 70,321 crore by December 31, 2016, from Rs 48,380 crore as on March 31, 2016.